Few issues today in hospital-physician relations are more difficult and controversial than how to ensure adequate physician on-call coverage for a hospital’s Emergency Department (ED). While hospitals’ paying of physicians on the medical staff to provide on-call coverage once was considered unthinkable by hospital management, it has become commonplace in many communities. Factors such as requirements imposed by EMTALA on hospital EDs, increases in the number of uninsured and in ED volume, and physicians’ concerns over declining reimbursements generally have contributed to a breakdown in the traditional voluntary relationships between hospitals and physicians, often leading to physician demands for compensation for on-call coverage.

The two most common ways for hospitals to compensate physicians for coverage are either to pay the physician for group a fixed fee for providing coverage for a certain time period or to pay a fee for the services provided by the physician to each patient receiving care. These methodologies raise significant issues from both practical and compliance standpoints, including (1) how to set compensation at a fair market value for the services provided; (2) whether the physician has a right to retain patient fees collected for services rendered, since the hospital is paying the physician under the coverage agreement; (3) whether compensation to a physician for coverage, regardless of whether any medical services are rendered, constitutes illegal payment for referrals; and (4) whether the arrangement meets other regulatory requirements. In two advisory opinions, one issued earlier this year, the OIG has approved arrangements using each of these two payment methodologies and confirmed that, at least in certain circumstances, such arrangements can be entered into with limited or no regulatory risk.

In OIG Advisory Opinion No. 09-05, issued in May 2009, the OIG approved a proposed arrangement by which a hospital would compensate physicians for on-call services performed for the hospital’s uninsured patients. As described in the advisory opinion, the hospital’s bylaws required all members of its active medical staff to provide some on-call coverage for its Emergency Department and further care for patients referred to them while providing this coverage. However, physicians in certain medical specialties had reduced their ED coverage such that the hospital lacked the needed coverage in those specialties for several weeks each month.

Under the proposed arrangement, the hospital would allow participating physicians to submit claims to the hospital for payment for services rendered to certain indigent and uninsured patients presenting to the hospital’s ED. The hospital’s patient accounting department would verify that the patients in question were not covered by any governmental or private insurance plan and would eventually qualify for a state program funding care for low-income patients. Participating physicians were required to be members of the hospital’s medical staff, sign a letter of agreement that while on call they would respond within 30 minutes of receiving a request from the ED to consult on a patient, evaluate the patient in person, and provide additional evaluation and care as clinically indicated. The physicians had to follow the hospital’s claim request process and waive any other billing or collection rights for the services they bill to the hospital. If the hospital determined that payment was available from another payor, the hospital would return the claim form to the physician’s office for the physician to pursue payment. All participating physicians must provide on-call coverage at the ED as part of the organized on-call schedule for the physician’s department or specialty, not to exceed one week of call per month. The hospital’s bylaws would be amended to reflect the new on-call coverage policy.

The hospital’s patient accounting department would pay the physician’s claim if there was no other payor source and the patient met the eligibility requirements. Payment would be made based on services actually needed and provided, with fixed payment amounts within the range of fair market value for services rendered. The arrangement provided payment only for services provided while the physician was on call for the ED or for inpatient care provided to patients admitted while the physician was on call for the ED. The fixed fees assigned to certain services were as follows: $100 per patient for a face-to-face emergency consultation; $300 per admission for care of one of those patients who was admitted from the ED as an inpatient; $350 to the primary surgeon of record for a surgical procedure or procedures performed on one of those admitted patients; and $150 to a physician who performed an endoscopic procedure or procedures on such an admitted patient. Except as provided above, there would be no variation in payment by physician specialty.

The OIG found that although the proposed arrangement could potentially generate prohibited remuneration under the Medicare and Medicaid Anti-Kickback Statute, the OIG would not impose administrative sanctions. In evaluating the proposed arrangement, the OIG recognized that hospitals are increasingly compensating physicians for on-call coverage at the ED and have legitimate reasons for doing so, which may include compliance with EMTALA, a shortage of certain physicians, or limited access to trauma services for local patients. However, the OIG noted that payment for on-call coverage potentially creates the risk that hospitals might pay physicians to entice them to join or remain on the medical staff or to generate additional business for the hospital. Payments for on-call coverage may disguise unlawful remuneration (1) when they do not reflect bona fide lost income; (2) when no identifiable services are provided; (3) when payments are disproportionately high in the aggregate compared to the physician’s regular medical practice income; or (4) when the physician is paid by the hospital for professional services furnished while on call but receives separate, additional reimbursement from insurers or patients.

The OIG found that the proposed arrangement would not meet the requirements of the safe harbor for personal services and management contracts, 42 C.F.R. § 1001.952(d), under the Anti-Kickback Statute because the aggregate compensation paid to the physician was not set in advance and would vary with the services provided. However, the OIG found that the proposed arrangement presented a low risk of fraud and abuse because of the following factors: (1) the arrangement provided for payment only for tangible services rendered by the physicians pursuant to their on-call duties, rather than any “lost opportunity” costs; (2) the payment would only be made for services rendered to uninsured patients, so there was little risk that the physician would be paid twice for the same service; (3) the physicians were required to provide follow-up inpatient care in the hospital to all patients seen in the ED, so physicians would be at risk for furnishing additional care without compensation; (4) the hospital had certified that the payment amounts were within the range of fair market value for services rendered, without regard to referrals or other business generated, and each payment category reflected the value of services actually provided and was uniform for all physician specialties; (5) the hospital had demonstrated the legitimate need for the arrangement, based on the medical staff’s attitude toward on-call coverage and the hospital’s resulting lack of coverage by needed specialists during some weeks; (6) the arrangement imposed other tangible responsibilities on the physicians, such as requiring responses within 30 minutes of the ED’s request, evaluating the patient in person, and providing additional evaluation and care as appropriate; and (7) the hospital was required to provide this care to be eligible for funding under a state program for low income patients.

Advisory Opinion No. 07-10 – Per Diem Payments for On-Call Coverage.

While recent Advisory Opinion 09- 05 approved hospital payments for physician services actually delivered to uninsured patients while on call, the OIG previously approved paying physicians a per diem rate for on-call coverage that exceeds the normal medical staff requirements, regardless of whether the physician renders any care. In OIG Advisory Opinion No. 07- 10, issued in 2007, the OIG approved an arrangement for a hospital to pay a per diem rate for each day spent on call at the ED. The OIG noted that the tax-exempt, nonprofit hospital had a charitable mission to help the poor but was faced with physicians in certain medical specialties who were unwilling to provide without compensation either on-call coverage at the Emergency Department or uncompensated inpatient follow-up care for patients who initially presented at the ED. On the recommendation of an ad hoc committee evaluating the situation, the hospital had adopted an arrangement that offered to all physicians in certain specialties on the medical staff the opportunity to provide paid ED on-call coverage as assigned by their departments, respond to emergencies in the ED, and provide inpatient care to uninsured patients.

Under the plan that already had been put in place, participating physicians were paid a per diem rate for each day spent providing on-call coverage at the ED, except for the one-and-a-half days per month (or 18 days per year) each physician was required to provide gratis. In contrast to the limited, flat payments addressed in Advisory Opinion No. 09-05, here the per diem rate was calculated based on a number of factors varying by specialty, including the severity of illness typically encountered, the likelihood of having to respond, and the degree of inpatient care required for patients initially presenting at the ED. An independent consultant reviewed pay rates and practices at dozens of medical facilities, developed benchmarks for reasonable compensation, and issued an opinion as to the fair market value of the per diem rates.

Although the OIG approved the arrangement by indicating that it would not impose sanctions, the OIG found that the arrangement in Advisory Opinion 07-10 for compensating on-call coverage did not satisfy the personal services and management contracts safe harbor because the aggregate amount of compensation was not set in advance. The OIG cited the fact that monthly payments to physicians participating in the arrangement could fluctuate from month to month because the days of compensated call provided might vary.

How did the OIG justify approval of a flat per diem payment for on-call coverage regardless of the patient services actually rendered, in light of its position in the more recent Advisory Opinion No. 09-05? The OIG in opinion No. 07-10 noted that compensation might disguise illegal kickback payments if they represented “lost opportunity” payments that did not reflect bona fide lost income or if payments compensated physicians when no identifiable services had been provided. However, the OIG found that the arrangement presented a low risk of fraud because the hospital certified that payments were fair market value for actual services needed and provided, without regard to referrals or other business generated between the parties. Specifically, the OIG found in Advisory Opinion 07-10 that the per diem rates were tailored to cover substantial, quantifiable services, a large portion of which were furnished to uninsured patients in the ED and after admission to the hospital. Payments were administered uniformly for all physicians in a given specialty, but unlike as required in Advisory Opinion 09-05, not across all participating specialties, without regard to a physician’s referrals. Factors used to calculate the different per diem rates included (1) the physician specialty and whether coverage was on a weekday or weekend; (2)the extent of the uncompensated responsibilities that would likely fall on each specialty; (3) the severity of illnesses typically encountered; (4) the likelihood the physicians would need to respond to a call from the ED and would need to provide on-call care to an uninsured patient; (5) the degree of inpatient care they typically provided patients admitted from the ED; and (6) the degree of inpatient care they typically provided. Presumably this detailed methodology for calculating the per diem rates for on call coverage, based on the amount of actual services that would typically be provided by a physician on call in the same specialty, distinguished this arrangement from prohibited payments for “lost opportunities” or for no identifiable services, which have been condemned by the OIG.

Satisfying the Requirements of the Personal Services Safe Harbor.

While these OIG advisory opinions provide guidance to the industry, they also warn that advisory opinions may not be relied upon by any person other than the party requesting the opinion. Therefore, another party that proceeds with an arrangement without first obtaining approval by the OIG through the advisory opinion process is taking some risk, at least in theory. The only other way to avoid this risk would be to construct a call coverage arrangement that conforms to every requirement of the safe harbor for personal services and management contracts.

Aggregate Compensation Set in Advance.

To meet the requirements of the safe harbor, the aggregate compensation over the term of the agreement must, among other things, be set in advance, be consistent with fair market value, and not be determined in a manner that takes into account the volume or value of any referrals or business generated between the parties. Although the aggregate compensation discussed in Advisory Opinion No. 07-10 was not set in advance, a similar methodology could be devised requiring each physician or group to provide call coverage for a set number of days during the entire year. The hospital then could calculate a fixed, aggregate payment to be paid monthly to the physician or group. As with the arrangement covered in Advisory Opinion No. 07-10, the physician would always run a risk that he or she would be inadequately compensated by such payments.

Specified Schedule of Intervals.

The personal services safe harbor also requires that if the agreement is intended to provide services on a “periodic, sporadic, or part-time basis, rather than on a full-time basis for the term of the agreement, the agreement [must] specify exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.” This requirement was not mentioned by the OIG in either of the two advisory opinions, which may indicate it is of less concern to the government. A full-time call coverage arrangement would meet this test, but full-time coverage would be possible only if a hospital had only one group practice in a particular specialty on its staff or one group that was willing to take all the call coverage in that specialty. Otherwise, it would be possible, though challenging, to actually specify in the coverage agreement the schedule of the intervals (and the exact charge for each interval) of call coverage assigned to multiple physician groups.

In condemning compensation for physicians when no identifiable service has been provided, the OIG unfortunately ignores the fact that a physician who is providing call coverage furnishes a service merely by being available and limiting his activities so that he can respond in a timely fashion. The frequency with which the physician or others in his specialty are called; the severity of the illnesses treated; and the incidence of necessary, uncompensated follow-up care all would affect the reasonableness of the compensation. Any increased malpractice risk inherent in treating the uninsured, who often lack preventive care and regular physician contact, may also be relevant to such physician compensation.

These advisory opinions are a double-edged sword for hospitals – while hospitals must provide adequate physician call coverage, they are understandably reluctant to open “Pandora’s box” by paying for call in some medical specialties but not in others. However, hospitals may no longer dismiss such arrangements out of hand based on legal concerns. Hospitals encountering difficulties in ensuring adequate on-call coverage may need to consider whether either type of payment arrangement described here could be used to meet their obligations.